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SOE - motive force of economy: please don’t be too reliant on the set rails

Update at: 20/12/2010 04:15:45

State owned economic groups and general corporations are now considered the “motivating force” of the national economy. However, the national economy cannot continue based only on set rails.

The weak giants
It is the state owned economic groups and general corporations which create the strength of the national economy. The development of the economic groups helps impulse the development of the national economy because it has pervasive impacts, promoting the development of technologies and creating new jobs.

Vice versa, the collapse of economic groups, especially powerful ones, will have negative impacts on the national economy.

Looking at the list of the 500 largest enterprises in Vietnam (VNR500), one would see that state-owned economic groups and general corporations hold the top positions, which shows that they are really large-scale economic institutions.

100 percent of economic groups and 60 percent of general corporations are listed in the 2009 VNR500 with the turnover accounting for 41.85 percent of the total turnover of all the enterprises, while the figure was 15.31 percent in 2006.

However, economists now compare economic groups with buses, which are very big, but not very strong.

The VNR500 also pointed out that the indexes in business efficiency of state-owned economic groups and general corporations are not much superior to private run enterprises, while they are more inferior to that of foreign invested enterprises (FIEs).

The ROA and ROE of eight economic groups and 54 general corporations in the 2009 VNR500 were 6.3 percent and 6.2 percent, respectively. Meanwhile, the figures of FIEs were 14 and 28 percent, respectively.


 
This shows that the business efficiency of state-owned economic groups and general corporations is lower by 2-3 times than that of FIEs. Meanwhile, in the last four years, the contribution by state owned enterprises (SOEs) to the GDP has decreased to 35 percent, lower than the contribution level by non-economic sectors at 46 percent.

Some analysts believe that state-owned economic groups and general corporations have been using too many resources of society, but they have not used them effectively.

Economic groups assume responsibility for protecting local production

However, it is undeniable that state owned economic groups and general corporations are playing an indispensable role in Vietnam’s economy.

It is not a surprise that the development of economic groups can meet the demand of the national economy. This comes in line with the development tendency in the world. The model of economic groups allows exploitation of the comparative advantages of the nation and this is an indispensable corollary of growth.

Developing economic groups allows for the strength to foster the national economy and the development of society.

Besides, the existence of economic groups can also help fight against the massive “invasion” of foreign groups in the context of the globalization and regionalization.

As for developing countries and countries which are carrying out industrialization like Vietnam, economic groups play a very important and strategic role in protecting local production. In many countries with reasonable development strategies, big and powerful groups have been taking shape and many of them have become the giants in the international market. South Korean chaebols are the typical example.

Don’t too reliant on the set road

It is necessary to set up reasonable strategies to develop state-owned economic groups and general corporations.

Now the core issue is to differentiate between the role of the state in the national economy, and the role and position of SOEs, especially economic groups and general corporations in the national economy.

In principle, doing business and state management are two different tasks. Meanwhile, economic groups and general corporations now are doing business and carrying out some functions of state management as well. As businesses they have to make profit, and as the “motive force” in the national economy, they have to undertake social and political tasks as well.

Second, it is necessary to define the rights and responsibilities of the board of directors and general directors in state-owned economic groups and general corporations.

In SOEs, there the two most important factors are ownership and corporate governance. The origin of capital does not decide business results, but business results depend on business management.

State owned economic groups and general corporations are now considered the “motive force” of the national economy. However, the national economy can go ahead not only based on set rails.

 

Source:Vietnamnet
Author: Pham Tri Hung - VNR Research Division
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